8 Fascinating Reads

Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are eight fascinating ones I read this week.

DemographicsThis could be one of the most important economic stories of the next half-century. The Economistwrites about the prospects of a new baby boom:

[BCA] cites a paper from the Max Planck Institute, released earlier this year, which looks at the "cohort fertility" rates of adult women. This looks at women born in a particular year and measures how many children they have; it finds that American women born in 1979 are likely to have an average of 2.23 children, 10% more than those born in 1950. This improvement in fertility does not show up in the more commonly used total fertility rate.

This relates to the long-term trend for women to have children later in life; in their thirties rather than their twenties. Two effects ensue. First, the fertility rate declines in the short-term because today's twentysomethings are having fewer children in their twenties. That has a short-term effect on the fertility rate. Secondly, females in previous generations who waited until their thirties tended to have one child, or none at all. Population forecasts tend to assume that future thirtysomethings will have the same problem. But medical improvements mean that women can have two or three children later in life. and the evidence suggests women want more children; BCA points to research that shows the average woman in the OECD has around half a child less than she would ideally desire. (In Japan and South Korea, this gap is as much as one child per woman.)

I ended up doing an all-nighter in my first week as an intern, which is when you start work at nine, you stay until five or six the next morning, you go home, have a quick shower and then head back into the office and continue working.

And I think the really bizarre thing about that is, as an intern, you're almost functionally useless to your desk. You're not really adding anything, you're not really doing anything, you're just one more warm body.

But because everyone else on the team is doing it, the expectation is that you are there and you are willing to be there at the same time even if all you are doing is looking over someone's shoulder.

I've lost count of the number of times I did that as an intern.

Human natureA group of scientists gave monkeys different amounts of water ("wealth") and set up an experiment to test risk aversion. From Quartz:

Wealthy monkeys, researchers found, generally took greater risks than poor monkeys. As a macaque became more dehydrated, it became more likely to choose the safe option. A wealthy macaque was more likely to chance getting no water at all for the possibility of getting a lot of it. Taken as a whole, the monkeys were slightly risk-averse; they were a bit more likely to choose the safe option on average.

This pretty much approximates the kind of rational human behavior economists assume when they construct economic models. Poor people tend to invest their money in assets where they know they won't lose it, like US Treasurys or simple stock market indices. Richer humans are more comfortable taking risks where they can lose money so long as the reward is sufficiently large.

But the behavior goes beyond the pecuniary domain. The experiment suggests that risk-analysis is genetic. Humans and monkeys make rational decisions based on risk and reward. In similar experiments, birds did not.

According to a new study from my organization, IHS, entitled "America's New Energy Future: the Unconventional Oil and Gas Revolution and the Economy -- A Manufacturing Renaissance," the unconventional energy boom increased average household disposable income in 2012 by $1,200 -- a figure that is expected to grow to $2,700 by 2020. That boost is mainly the result of two factors. First, households are spending less of their total income on utilities, whether directly for less-expensive natural gas or by lowering the cost of electricity generated with natural gas. Secondly, lower energy costs have led to a reduction in the cost of goods and services within the broader economy.

InefficienciesResearchers at Tufts tallied up the economic "costs" of using paper cash. From Quartz:

Consumers. They mostly lose time -- about 5.6 hours a year -- fetching cash, but Americans do spend $8 billion a year on ATM fees, and they lose $500 million to theft. The bigger problem, though, is that cash exacerbates inequality, with poor Americans and the unbanked -- some 8.2% of US households -- more reliant on cash and more likely to pay higher fees to get it.

Businesses. Bad news for Square:Small businesses don't lose much money by operating cash-only. But larger businesses spend a significant amount of money dealing with cash -- collecting it, sorting it and getting it to the bank without it being stolen. US businesses lose $40 billion a year to cash theft and loss, about 1% of total revenues.

Government. The government loses out on $100-$500 billion in tax revenues each year, depending on exactly how big the US grey market is -- higher-end estimates suggest $2 trillion in activity goes unreported. That's on top of the $1.5 billion the US spends to make and distribute notes and coins, many of which end up overseas. Other countries have tried to put the kibosh on cash transactions to avoid this problem; in Spain and Italy, transactions above 1000 and 2,500 euros, respectively, are banned; Mexico taxes currency deposits over 15,000 pesos a month -- but the US hasn't yet tried something similar.

Conglomerates

The problem with Microsoft (NASDAQ: MSFT) is it's just too diverse, writesThe New York Times:

Microsoft already has a video game console, the No. 2 Internet search engine, a major Web portal, an enormous corporate software business, an operating system for personal computers, cloud computing services and applications software. The company is a mash-up of the businesses in which competitors like Google, Yahoo, Oracle, Apple and Nintendo specialize, putting an enormous burden on the company's chief executive, Steven A. Ballmer, who has announced plans to retire within the next 12 months.

OutlooksThe blog Reading the Markets reviews Tyler Cowen's new book Average Is Over:

What will the United States look like in twenty to forty years? Extrapolating from the present, Cowen argues that "we will move from a society based on the pretense that everyone is given an OK standard of living to a society in which people are expected to fend for themselves much more than they do now." He imagines "a world where, say, 10 to 15 percent of the citizenry is extremely wealthy and has fantastically comfortable and stimulating lives. ... Much of the rest of the country will have stagnant or maybe even falling wages in dollar terms, but a lot more opportunities for cheap fun and also cheap education. Many of these people will live quite well, and those will be the people who have the discipline to benefit from all the free or near-free services modern technology has made available. Others will fall by the wayside. ... It will become increasingly common to invoke 'meritocracy' as a response to income inequality," and this "framing of income inequality in meritocratic terms will prove self-reinforcing. Worthy individuals will in fact rise from poverty on a regular basis, and that will make it easier to ignore those who are left behind."

Big moneyWalt Hickey of Business Insider points to a Census Bureau map showing the richest region of America by median income. Step on up, Washington DC:

Enjoy your weekend.

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